Deed transfer - will it hurt my credit?

17 Replies

Hello, I have a piece of land in Arkansas on a mortgage and a home in wisconsin that's on a mortgage, both through banks. If I quit claim these out of my personal name into an LLC, will this hurt my credit by closing accounts in my personal name?

Originally posted by @Corbin Jones :

Hello, I have a piece of land in Arkansas on a mortgage and a home in wisconsin that's on a mortgage, both through banks. If I quit claim these out of my personal name into an LLC, will this hurt my credit by closing accounts in my personal name?

Doing a quit claim deed from personal to LLC may trigger a due on sale clause. Your mortgage to bank in still recorded in the your personal name but the asset is held in LLC (deed) You need to do more research on this as to what your overall goal is. Please dont consider this legal advice, I only play a lawyer on BP for fun.

 

@Account Closed Okay, I see. I thought I could have the debt itself transferred to the LLC and that it would help my DTI. So really, the only way to decrease my DTI is to buy homes through seller financing since that is usually not reported to the credit bureaus?

Originally posted by @Corbin Jones :

@Account Closed Okay, I see. I thought I could have the debt itself transferred to the LLC and that it would help my DTI. So really, the only way to decrease my DTI is to buy homes through seller financing since that is usually not reported to the credit bureaus?

Or buy properties on a commercial type note as those are not reported to a credit bureau typically.

 

Excellent write up by Peter from Out West Somewhere LOL! 

@Corbin Jones , seller financing has been rendered obsolete by the low interest environment; money is so cheap and so easily available that no qualified buyer would pay more in % to a seller, and no normal seller would risk his principal with a low qualified buyer who does not qualify for cheap money. When you think about this in a 15% interest rate environment like early 80's it makes a lot of sense for both the seller and the buyer to work together and cut out the bank!

Usually the DTI is not the limiting factor for any of my young clients I have worked with over the years, it's the access to down payments. If you can manage your equity ratio, your DTI will never be the bottle neck.

@Corbin Jones I'm not sure what you mean by "closing accounts in your personal name." Keep in mind that the lender lent the money to "you" not the entity or name you are quit claiming to. Quit claiming does not absolve anyone of their obligation for payment. On another note, the only way, I feel,would be to stop paying the note or, if the lender finds out that the deed has been transferred unauthorized, they can demand the entire outstanding balance due(Due on sale), and if that amount is not paid timely then you could have a late payment impact your credit score. All the best.

@Shawn Ackerman thanks, Shawn. I'm realizing that I've had the wrong impression on some of these things. I thought I could transfer the payment liability to the LLC and have it completely separate from my name. I guess that's what a commercial loan is for. I have probably been misinformed on many of these things.

Hey @Corbin Jones hope you've been well. I'm actually going to be in a similar boat where the lender won't loan out to an LLC (strictly residential) so they suggested getting the loan in my personal name, wait until we finished Rehabbing and get a Tenant in there, Cash out Refi like normal, and THEN quit claim the deed to the LLC and let it ride. My understanding is that the Due On Sale Clause still exists and can be triggered. Even though it's rare that it does get triggered it's still a risk. One way to mitigate the risk is to refinance it as another type of loan. We're definitely getting an attorney involved but I'm curious how you dealt with this so far.

@Pathik P. hey Pathik, thanks for the update! I am actually refinancing two properties through a bank right now and I addressed this with them beforehand. They stated that as long as payments are made, they will turn their heads the other way. They have been very poor with communication and this has taken 4 months, but their interest rates are extremely low. So due to the benefits, I'm still refinancing with them instead of choosing another bank. I think there are plenty of banks that are okay with transferring to an LLC. It's definitely a question that should be brought up.

@Corbin Jones I did some reading up today and saw that in Nov 2017 Fannie Mae put out an update in their servicing guide about transferring ownership to LLC's. Simple criterion were: 1) Had to be a Fannie Mae Loan 2) Had to have been purchased or securitized after June 1, 2016 3) The original borrower (you) had to be the controller or majority owner of the LLC

To add extra protection, you can request a letter of approval from the Servicer of the loan, citing Fannie Mae D1-4.1-02 that shows you're good as long as you meet those criterion. No land trust needed, no risk involved. I'm still getting some face time with an attorney to be safe but I'm definitely more at ease about it.

Fannie Mae Servicing Guide link -- https://servicing-guide.fannie...

You'd still be the note holder and mortgage is in your name (count again you and your DTI) but ownership is LLC.

@Corbin Jones that is awesome that your bank will “look the other way”.  Really and truly I feel they are just after their bottom line and since they still have us on the hook for the note,Makes them no never mind.  I would suggest looking for Non QM lenders only your area. These are more asset based lenders and do not necessarily have to follow all of the Fannie and Freddie rules as they hold the notes on their books opposed to selling them. Keep on pushing man. All the best to you on your journey💪🏽💪🏽  

Just did a quick google search for NJ and here is what I came up with. Typically these lenders prefer to lend in your company name(but you may still need to personally guarantee)

https://www.nonprimelenders.co...

@Pathik P. thanks, Pathik. Are you and @Shawn Ackerman saying that there are federal guidelines around this? I won't transfer them to an LLC if it's a crime. I thought it was more against the bylaws of a bank, but didn't think it was a crime or anything.

@Corbin Jones as I mentioned prior the lender made the note with you and I’m certain on the note there is verbiage regarding transferring, assumability etc..

So the short answer is NO you cannot transfer the debt obligation to another person or entity without expressed consent from the lender. And a phone conversation would not mean anything if the note is called due for some reason. I believe mortgage assumptions stopped back in the 80’s or 90’s.   with that said, quit claiming deeds while still maintaining the debt in the original debtors name is not uncommon. And the banks know it. I am not an atty so can’t speak to New Jersey law. It’s more so an “at your own risk” kind of deal. 

I have done this atleast 6 times and not once has the note been called due or has a lender contacted me saying “hey what’s up with the new name on the tax bill??”  I think if you miss a payment, it would cause them to look at it as another breach of contract. 

Not sure if I answered your question man but just giving you the real based on my experience. 

@Corbin Jones similar to what Shawn said above, not a crime. It's more so that the bank have the option to call the full amount on the note if they want to. It's AMAZING that you got the bank saying they wont, but I would recommend getting a letter of approval or something in writing from them that's legal saying they won't turn around and call it on you. There are quick ways to fix it though: 1) Just put it back on your name 2) Refi to the LLC under nonconforming loan (albeit it's a higher rate of course).

The debt itself though is still on your name. Only ownership is transferred when you quit claim -- meaning whatever amount of interest ownership you had in that property (0% or 20%) goes to whomever is listed on the transfer. Warranty Deed, which are more "legit" specifically says how much claim you had in the property before transferring it over. I don't think there's a way to get the debt to be transferred over without the bank rewriting it.